Bernie Sanders & Student Loans: Can America Afford a Debt Jubilee?

Student loans are sources of stress for numerous American families. In fact, statistics show that student debts are worth nearly $1.5 trillion as of the end of 2018, and approximately three million individuals over the age of 60 are still carrying student debt. Thinking about student loan debt is difficult for young adults who are in the thick of college studies and who are only thinking about their futures and careers in the rosiest possible terms. However, once these students graduate and start making loan payments, they quickly realize what an impossible situation they are in particularly once they get married and begin seeing additional family costs.

Everything You Need to Know About Student Loan Debt Forgiveness and the Debt Jubilee

While student debt forgiveness once seemed to be an impossible idea, today, it is seeming much more possible thanks to the current economic climate in America and the ideas espoused by presidential candidate hopefuls. Soon, millions of Americans at all socioeconomic levels may be able to celebrate a welcome jubilee and relief from the overwhelming burden of long-lasting debt.

What Is a Jubilee?

The term jubilee goes back to Bible times when God told the Israelites to hold a jubilee every 50 years. According to the biblical book of Deuteronomy, the Israelites were to forgive numerous debts against their fellow countrymen in the fiftieth year and to return to their ancestral homes as parcels of land were given back to the original owners. While this jubilee ensured that the Israelites were able to retain some hope even if they were currently working as servants for others or had been forced to sell their ancestral lands to pay off debts, the jubilee did not refer to complete debt forgiveness as the term now means.

Could a Jubilee Be Coming?

While there is no law in the United States currently to proclaim a jubilee every certain number of years, there have been certain periods in U.S. history when incredible levels of debt relief were granted and people’s lives dramatically improved. One such example would be the time of the New Deal in the 1950s, which provided much-needed relief for families who had been burdened by the Great Depression and World War II. Could another jubilee be swiftly coming?

Four specific facts point to the strong possibility of sweeping debt forgiveness and a coming time of jubilee.

1. Debts of all types continue to rise in the United States. The government is in an incredible amount of debt, and consumer debts are sky-high as well.

2. Most Americans lack good financial health. Many are making the same wages that they were years ago, making it difficult for them to build savings or pay off debts. This is also leading to a stagnant economy.

3. Popular opinion especially among lower-income individuals in the U.S. shows that many are looking for huge changes in the American government.

4. The economy is in a weakened state, creating a strong possibility of a coming recession.

What About the Debt from Student Loans?

Intricately connected to this discussion of a possible debt jubilee is the current discussion of the Democratic presidential candidates. Numerous candidates have recently been proposing a variety of student loan forgiveness policies that they promise to adopt if they are elected. Here is a brief look at the candidates making these proposals and what their possible policies could include.

  • Bernie Sanders, who has probably been the most vehemently for debt forgiveness, has promised to cancel all student debt regardless of the income level of the individual. He has also promised to provide more Pell grants and other monetary offers to help lower-income individuals attend college.
  • Elizabeth Warren has promised to cancel a great deal of student debt, but her forgiveness policy would be based on the income level of the individual.
  • Julian Castro has also called for a partial forgiveness policy, stating that individuals with student debt should not have to make payments until they are making at least 250 percent above the federal poverty mark.

The candidates who support partial student debt forgiveness rather than full forgiveness do so because so many Americans with this debt are actually making very high incomes or have graduate degrees that set them up with the ability to make high incomes.

Can America Afford to Forgive Student Loans?

While all of this talk about student debt forgiveness can sound incredibly positive, Americans must keep in mind that promises from presidential candidates do not automatically equal positive results. Any person who has studied politics in the last several decades will know that most promises made on the campaign trail end up to be nothing more than smoke with no real substance to them. Therefore, can Americans start crossing their fingers and hoping for the best when it comes to student debt, or should they get rid of any hope they might still be holding onto for their bank accounts?

Although there are many positives in student debt forgiveness, there are also a few distinct problems with the proposed policies.

1. Nobody knows exactly how much student debt exists. While some estimate 2019 figures around the $1.6 trillion mark, the U.S. Department of Education does not actually disseminate full data.

2. Many colleges and universities also hold many student loans, which could add significantly more to the above figure.

3. Sanders proposes to fund this debt forgiveness with an additional tax on traded funds, which could cost the average American plenty over his lifetime.

4. Student debt forgiveness could make colleges and universities significantly raise their tuition rates, leading to even more debt in the coming years.

Because of the many unknowns, it is difficult for many Americans to form opinions on this subject, and it is hard for them to argue the position that they may already hold. Therefore, Americans may just have to wait and see what further information the presidential candidates give before making up their minds as to whether or not they support student debt forgiveness.

California Moves to Limit Interest Rates on Short-Term Loans

When people fall behind on their bills, they often turn to short-term loans. This can seem like a helpful way to deal with a sudden financial emergency, but those in need might not have many options to choose from or fully understand the terms of the loan. In some cases the borrower will find that they’re paying triple digit interest rates. In many situations, these high interest rates are the reason borrowers are struggling to keep up with the amount that’s due with each installment. California is the latest state to take a closer look at this situation and lawmakers seem eager to regulate these types of loans.

Taking a Closer Look at Short-Term Lending in California

Now that the state has a governor willing to stand up against short-term lenders, many are hoping that the state legislature will finally take action against predatory lending policies. In particular, the bill would put a cap on how much interest short-term lenders could charge to their borrowers. The proposed action, dubbed Assembly Bill 539, would limit interest rates to 36%, allowing an additional 2.5% federal funds rate to be applied on all loans. This cap would apply on loans from $2,500 up to $10,000.

The state’s attorney general, Xavier Becerra, is a proponent of the bill and is joined by California businesses, churches, and community organizations. The current version of the bill is being sponsored by the Los Angeles County Board of Supervisors and, considering all of the support behind it, there may be a stronger possibility of getting it passed.

On the opposite side of the issue are the lenders themselves. Even though there is plenty of community support for the bill, lenders are investing considerable money into a campaign to sway lawmakers. If their tactics prove effective, the state legislature may still veto the bill in spite of so much support. In that case, lenders will continue overcharging their borrowers at rates which cause many to fall behind on their loans.

In the Hands of the Lawmakers

At this point, the issue rests with state lawmakers and it remains to be seen how they will decide. Assemblywoman Monique Limón of Santa Barbara introduced the bill, but even she seems concerned that the state legislature will vote against the bill. She says it will be up to each representative to determine how they will side. They can either choose to side with a few lending businesses, or they can pass a bill that will benefit consumers and more responsible lending institutions.

The opposition includes more than 19 short-term lenders, who offer vehicle title loans, small personal loans, and other installment loans. Together, they have invested up to $3.5 million in lobbying lawmakers to vote against Assembly Bill 539. Their campaign has been ongoing only since 2017, but this is just the latest strategy to keep the state’s laws on their side. Since 2010, these same companies have donated upwards of $3.2 million to political parties, election campaign funds, and to individual state legislatures as campaign contributions.

Those lenders have increased the pressure as California’s Senate Banking and Financial Institutions Committee conducted a recent hearing on the issue. Ahead of the hearing, short-term lenders gifted state senators with a total of $39,000 this month. In addition, they contributed $10,000 to the California Democratic Party.

Other Lenders Are Already Subjected to Interest Rate Caps

Judging by the actions of these lenders, you might think this is the first bill of its kind. To the contrary, California lenders who offer loans up to $2,500 are already limited in what they can charge to borrowers. These smaller lenders are only able to charge between 12% and 30% in annual interest. That cap originally applied to larger loans as well, but, in 1985, the state voted to apply the cap only to loans totaling $2,500 or less.

California often leads the charge in financial and social reform, but not in this case. Compared to many other states, California has relaxed restrictions on private lenders, making it easier to charge predatory rates to borrowers. In addition to Washington D.C., 36 states have initiated interest rate caps that are applied to larger short-term loans. For instance, borrowing $10,000 over a five year period results in an average 25% interest rate elsewhere in the country.

Meanwhile, the number of borrowers in California has skyrocketed in recent years, partly because of a ballooning cost of living. Since 2008, the number of borrowers of short-term installment loans in California has grown from 2,000 up to 350,000. Those borrowers are paying annual interest rates of 100% or more.

Opponents of Assembly Bill 539 say the cap will harm borrowers as well as short-term lenders. They claim they will no longer be able to offer loans to those with bad credit or no credit, who are the consumers that make up the bulk of their borrowers. They say the lower interest payments will require them to be more selective in who can borrow. Currently, short-term lenders use their willingness to lend to virtually anyone as an advertising hook.

In fairness, not all short-term lenders are attempting to block the passage of the bill. Previously, the state’s supreme court has made it possible for other courts to deem high-interest loans as “unconscionable” and left it up to them to determine whether or not those loans would be legally enforceable. Combined with suggestions that a cap may be left up to voters in a ballot measure, the supreme court ruling encouraged many short-term lenders to open negotiations. While they may still be against the proposed cap, some lenders are willing to discuss a compromise.

It remains to be seen how the state will vote on Assembly Bill 539. If they do pass the measure, lending in the state of California will change abruptly. Paying more reasonable interest rates will allow borrowers to meet their financial needs without risking the mounting debt that results from triple digit interest rates. While lenders claim the proposed cap will harm borrowers, it may actually make it easier for California consumers to meet their financial obligations without having to resort to loans as frequently.